Wednesday’s news that the California solar cell manufacturer and DOE loan guarantee recipient Solyndra will be declaring Chapter 11 bankruptcy has government criticsgrumbling about clean tech boondoggles and failed government programs. But Solyndra’s failure, while unfortunate, is hardly an indictment of federal energy technology policy. Failure is to be expected with emerging, innovative companies, whether they are financed by the government or the private sector. The success of the Department of Energy’s Loan Guarantee Program (LGP) should thus be judged not by any one investment but by the performance of the entire portfolio.

Critics have seized on the news of Solyndra’s bankruptcy to condemn the Department of Energy’s Loan Guarantee Program, which provided a $535 million loan guarantee in 2009. The National Review’s Greg Pollowitz writes that Solyndra’s failure shows “why the government should not play venture capitalist.” Yet the fact is that, when judged by its entire diverse portfolio of investments, the LGP has performed remarkably well. Indeed, with a capitalization of just $4 billion, DOE has committed or closed $37.8 billion in loan guarantees for 36 innovative clean energy projects. The Solyndra case represents less than 2% of total loan commitments made by DOE, and will be easily covered by a capitalization of eight to ten times larger than any ultimate losses expected following the bankruptcy proceedings.

The broad success story of the LGP shows why federal investment in clean energy is necessary to help early-stage clean energy technologies achieve scale and reach commercialization. The inherent uncertainty in investing in novel technologies, coupled with the high capital costs and long time horizons, prohibits most venture capital funds from investing in large-scale clean energy projects. Financing tools and direct investment from the federal government can help bridge this well-known “Commercialization Valley of Death,” and the LGP is an effective way of doing that.

Instead of “picking winners and losers,” as the program’s critics allege, the program actually reduces risk for a suite of innovative clean energy technologies and allows venture capitalists and other private sector investors to invest in the best technology. Rather than picking winners, the LGP enables innovative companies to compete in the marketplace, allowing winners to emerge from competition. And while Solyndra is shutting its doors, companies like SunPower, First Solar, and Brightsource Energy, which also received loan guarantees and other support from the federal government, are industry leading success stories.

With perfect hindsight, it’s all too easy to see why Solyndra proved to be a bad bet: the firm’s central innovation, a thin film technology that avoided the use of silicon, proved to be far less important when refined silicon prices collapsed after Solyndra’s founding; the remaining installation cost advantages provided by the company’s cylindrical solar panels proved too small, and Solyndra was unable to capture the manufacturing cost reductions that have helped other U.S. thin film companies, like First Solar, thrive despite low silicon prices. Perhaps most importantly, intense pressure from heavily subsidized Chinese manufacturers is driving a surprisingly competitive solar market, forcing Solyndra to get costs down faster than the start-up firm could achieve.

It is possible that these fatal factors could have been avoided by better vetting from DOE, or that removed from the pressures of a fast-paced stimulus environment, DOE may not have made this bad bet. But to assert, as numerous conservative commentators have been quick to do, that Solyndra’s failure is proof positive of the government’s supposed inability to “pick winners” is patently absurd. After all, Solyndra received repeated rounds of investment to the tune of $1.1 billion from some of the private sector’s biggest stars, including Richard Branson, the WalMart family, and leading venture capital firms like U.S. Venture Partners and RockPort Capital. Venture capitalists and the U.S. government both placed a bet, Solyndra’s entrepreneurs took a shot, and unfortunately for all, they missed. Such is to be expected in the high-risk but high-reward world of early-stage technology ventures. In addition, the loan commitment places the government in a senior position in the result of a bankruptcy, ensuring that DOE will get paid out before the VCs and other investors.

Critics who think the government has no place in supporting technology innovation have a tenuous grasp of U.S. economic history. In fact, the government has a long and successful history in helping America’s intrepid entrepreneurs succeed in new high-risk, high-reward technology sectors. As we wrote in “Where Good Technologies Come From,” the government has played a key role, either as an early investor or a demanding customer, in the development of virtually every advanced technology we take for granted today, from aviation to biotechnology, to computers and the Internet, microchips, and now clean energy. Indeed, without a visionary government investing in key strategic industries, world-leading companies like Google, Genentech and Boeing would not exist.

The United States was able to be the world’s technology leader in these fields because of its forward-looking investments, as well as a relative dearth of competition from economic rivals. In today’s clean energy market, however, competition is fierce. U.S. companies compete with low-cost Chinese manufacturers who benefit from generous state subsidies and a robust and comprehensive set of policies to encourage solar manufacturing. Indeed, in 2010 the China Development Bank provided more than $30 billion in loans to Chinese solar manufacturers. China’s large clean energy investments have helped reduce the price of solar cells by 42% in just the last nine months, which was one factor in Solyndra’s inability to compete.

While the United States may not be able to afford the scale of support for clean energy that China can, it can compete by focusing on what it has always done best: innovation. In the solar industry, the long-term goal must be to drive innovation so that solar can be cost-competitive without subsidy. Fortunately, the Department of Energy recognizes this imperative and has embarked on a new effort–the SunShot initiative–geared toward dramatically lowering the cost of solar PV. The SunShot initiative focuses on bringing down costs by pursuing innovations in four particular areas, including solar cell technology, power electronics that optimize the performance of installations, improvements in manufacturing processes, and installation and system design.

The Sunshot initiative and other key technology innovation programs like the Advanced Research Projects Agency for Energy (ARPA-E), embody the kind of smart innovation policy that holds the promise of fundamentally transforming the economy and ushering in a new era of U.S. technology leadership.

In the face of intense competition in the clean energy sector, America faces two choices. We can abandon our entrepreneurs and innovators in this new strategic growth sector, or we can redouble our efforts to invest in energy innovation, support clean energy entrepreneurs and help American firms compete and ultimately prevail in the global clean energy race. If we walk away now, America will lose out on one of the greatest economic opportunities of the 21st century.

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If you want to induce non-fossil fuel energy technologies, simply change the price of fossil fuels. The market will see to innovation and identify winners and losers without the clumsy and diseconomic interference of the federal government. Even if policy makers were somehow lucky enough to back a technology firm/solution that survived, this would no doubt come at the cost of squeezing out a superior alternative. If you want to encourage/induce the use of non-petroleum products, tax petroleum. Otherwise stay out of the markets and the business of innovation.

Thanks for your comment. While I share your view that raising the price of fossil fuels could lead to marginally increased investment in non-fossil alternatives, I believe your faith in this solution is excessively optimistic. I say this for two reasons.

First, while the high cost of clean energy technologies is a major barrier to their ability to displace fossil fuels on a large scale, it is not the only one. There is also reliability (i.e. some technologies such as solar PV and wind energy are intermittent, and require some kind of energy storage to be reliable sources of power); infrastructure hurdles (today’s energy infrastructure has been set up to support established incumbent technologies, in particular large centralized power plants, and not emerging challengers like renewables which frequently require new transmission lines); technology risk and capital intensity (the scale and long-time horizons of clean energy projects makes it difficult for firms to calculate expected returns on investment, especially for first-of-their-kind technologies); and knowledge spillover from industry investment in research and development, leading to under-investment by private firms in basic and applied research.

Each of these challenges requires different and thoughtful policy solutions, and will not be solved simply by increasing the price of fossil fuels. A clear example of this can be seen in Europe’s response to higher gasoline prices. Many European countries place high taxes on the consumption of gasoline, but this hasn’t led to a large-scale shift to electric vehicles. Instead, Europeans simply drive less. The large scale diffusion of electric vehicles will require investments in enabling infrastructure such as vehicle charging stations, which are necessary to make the technology a viable alternative to today’s automobiles. This infrastructure will not appear simply because of higher gasoline prices, but only as the result of large state investments, perhaps in partnership with the private sector.

The second problem with your assessment is that any politically plausible tax on fossil fuels will be far too low to make most clean energy technologies cost-competitive. Indeed, no country has ever implemented a carbon price high enough to close the price gap between fossil and clean energy technologies. These real political constrains lend even more support to a clean energy innovation policy that is geared toward driving down the unsubsidized costs of clean energy without requiring high taxes on carbon.

Lastly, I’d like to take issue with your characterization of government technology policy as “clumsy and diseconomic.” In making such a statement, you are simply ignoring the long and successful history of federal investment in technology development. As we show in our report, “Where Good Technologies Come From,” the government has played a central role in the development of nearly every key innovative technology that we take for granted today, from airplanes to microchips, biotechnology, the Internet, nuclear power, and the list goes on. The government’s role has long been to provide visionary leadership in targeting innovative technology sectors, and by acting as an early investor or demanding customer, reduce technology and investment risks for private sector innovators–exactly what the government is doing for clean energy today. Certainly the case of Solyndra provides lessons for future policy in this area, as we discuss in the article. But it is certainly not an indictment of energy technology policy in general. I hope you’ll have a chance to read up on the successful history of federal investment in innovative technologies.

The great flaw in the argument is to be found in this contradictory statement: “Instead of “picking winners and losers… the program actually reduces risk… and allows venture capitalists and other private sector investors to invest in the best technology.”

But risk is at the heart of capitalism. Without risk, there’s no incentive to be cautious in how you allocate resources. If the government underwrites your losses, you’re free to spend without concern for your own well being, as we saw in the S&L meltdown and the housing meltdown (where “buyers” had no equity stake in their zero-down mortgages).

By eliminating risk for a select group of “investors”, the government is explicitly trying to pick winners and losers. But why should a group of politicians have a better idea of how to allocate capital than people in the industry risking their own money? The fact that the CEO of Solyndra was a major contributor to the administration’s political campaign just puts the final tawdry gloss on the whole affair.

In no way do govt. technology policy programs “eliminate risk.” Venture capital and private investors poured in over $1 billion to Solyndra, double the government investment here, and they are likely to lose nearly all of it. So the assertion made here that govt policy eliminates risk for investors or skews the market here is fundamentally flawed.

As you say, innovation is the key, and it is happening. Lots of emerging technologies are gaining momentum. One I think more people should pay attention to is Ocean Thermal Energy Conversion. Solar is not a base-load 24/7 power source, so it can never end our dependence on fossil fuels. OTEC is baseload, and ready to roll out commercially today. The On Project http://tiny.cc/06lud is a place to learn a lot more.

It surprises me to hear that ocean thermal is ready to go. I thought it was still theory, no development yet. I would say pump storage, which is already in use in some places, is the working system most likely to smooth out intermittent power sources. At least until a super battery is developed. Pump storage is not cheap or easy, but it can be expanded starting about now, I think.

Jesse Jenkins, one of the authors of the Forbes article, was on KQED’s Forum (public) radio program – Solyndra and the Green Jobs Economy, Fri, Sep 2, 2011 — 9:00 AM. He made several excellent points and several similar to those in the ariticle. I’ve worked in the field of Solar PV for over 20 years in the R&D side. I have a few sources of information and some comments I’d like to share. There are many ways besides the Loan Guarantee program that the DOE is supporting research and innovation in Solar and Renewable Energy. At the same time the Solyndra story broke, the DOE was making awards to other companies through a variety of programs and mechanisms based on peer (merit) review: September 01, 2011 – Energy Secretary Steven Chu announced more than $145 million for projects to help shape the next generation of solar energy technologies. A full list here is found at the DOE site. The Dept. of Energy does not have bureaucrats picking winners. They do peer (merit) review using experts in the field and they have a portfolio of supported companies and universities that spreads the risk across technologies, approaches and regions of the U.S. Peer review is the time-honored process used by the scientific community to sort out sound science from what sounds like science. It is what has given humanity all the technological advances that we have in our hands. An August 12, 2011 editorial in the journal Science by National Science Foundation director Subra Suresh highlighted the importance of peer review in the process and described an international meeting (global Merit Review Summit) to be held May 2012 in Washington D.C. and lead by NSF. The DOE Loan Guarantee site is at lpo dot energy dot gov. There, you can learn more about the other projects that this program is supporting. A U.S. Solar Energy Trade Assessment report (SEIA/GTM) is available at the SEIA or GTM site. It says that the U.S. Solar Industry Was Net Global Exporter by $1.9B in 2010. Did you use any of these sources for your articles or comments? What can the public do to sort out the facts from opinions?

“It is possible that these fatal factors could have been avoided by better vetting from DOE, or that removed from the pressures of a fast-paced stimulus environment, DOE may not have made this bad bet.”

It’s a reason to abandon Federal Energy Innovation Policy lead by Obama.

I went to the government linked page, added up the permanent jobs created (of course unproven) and then added up the current losses, knowing that since none of them make money the losses are going to be much higher. Plus, you should include admin costs as well.

At any rate losses are up to $1Billion, and only about 1,000 jobs created (I looked at only the core section) that’s a million dollars per job.

Keep in mind that all of these schemes produce energy at 3-5x the cost of natural gas or coal or hydro, already dubious.